‘Quiet’ Ferreira Takes Over at Vale as Conflict Hurts Stock

By Juan Pablo Spinetto -
May 23, 2011

After Murilo Ferreira helped Vale SA (VALE3)
win a takeover battle for Canadian miner Inco Ltd. in 2006, his
boss, Chief Executive Officer Roger Agnelli, promoted him to
head the unit and build a global nickel business from Toronto.

Nickel output rose to a record by 2008, in part because
Ferreira boosted relations with local unions and took a
consensus-building approach that impressed fellow executives and
labor representatives such as United Steelworkers Union leader
Leo Gerard. Those attributes have now helped him win the top job
at Rio de Janeiro-based Vale, after Brazil’s government ousted
Agnelli in a dispute over its strategy and investments.

“What struck me a lot is that he’s a very balanced and
quiet person,” Arthur Vasconcellos, the executive at headhunter
firm CTPartners that interviewed Ferreira for the Vale CEO
selection process, said in a telephone interview on May 10. “He
has a very international vision, knows the mining and
steelmaking business deeply and has a very strategic mindset.”

Ferreira, 57, is taking over as CEO amid investor concern
that Vale, the world’s largest producer of iron ore, will yield
to pressure from Brazilian President Dilma Rousseff to spend
more on projects that boost the value of exports, such as
steelmaking, where returns can be half those of iron ore.

Vale Slump

Vale slumped to an eight-month low in Sao Paulo trading on
May 16. It traded at 5.49 times estimated earnings for this year
on May 20, compared with 11.32 times for BHP Billiton Ltd. and
6.75 times for Rio Tinto Group, according to Bloomberg data. Its
dollar bonds due in 2020 yielded 1.26 percentage points more
than similar-maturity securities from Melbourne-based BHP on May
10, the most since Vale sold the securities in September.

Vale fell 5 centavos, or 0.1 percent, to 43.70 reais in Sao
Paulo trading and lost 9.9 percent since the start of the year,
compared with a 10 percent drop for the benchmark Bovespa Index.

Net income rose to a record $6.83 billion in the first
quarter, helped by a 95 percent increase in the price of iron-
ore sold and a one-time gain from the sale of assets.

The stock is an “unusual buy opportunity” as it has a
“very strong” earnings outlook and is “unlikely” to suffer a
sharp drop in iron-ore prices, Goldman Sachs Group Inc. analysts
led by Marcelo Aguiar in Sao Paulo said in a May 19 report.

Government Criticism

While Agnelli oversaw more than $84 billion in investments
and acquisitions and distributed $17 billion in dividends, he
clashed with the government over demands he spend more on
steelmaking and criticism he fired too many local workers when
Latin America’s largest economy entered recession in 2009 for
the first time in six years.

Agnelli also faced criticism from former president Luiz Inacio Lula da Silva for buying ships in China when Brazil was
setting up its own yards. The disputes ended his decade-long
tenure as Vale head when Ferreira officially took yesterday.

The choice of Ferreira is likely to improve relations with
politicians in Brasilia, which may be positive for the stock,
according to analysts such as Rene Kleyweg at UBS AG in London.

“The reason he is there is because he would be able to
ensure a more constructive working relationship with the
government,” he said in a telephone interview. “That means a
more professional approach in terms of how, if any conflicts do
arise, they would be handled in a more professional fashion.”

Same Strategy

In his first public comments since his nomination as CEO,
Ferreira said May 20 that the company will “continue working
under the same parameters that allowed it to succeed in the past
few years.” The company will maintain the same strategic plans
and budgeted spending of $24 billion this year, he said.

Ferreira declined to comment when contacted by Bloomberg
News.

Less than two years into the job at Inco, Ferreira quit the
company as slumping commodity prices and the CEO’s management
style strained relations, according to two people familiar with
the situation. The men clashed when Ferreira wanted time for
voluntary redundancies, while Agnelli wanted to fire workers.

Ferreira “felt first-hand the very different cultures that
Vale has to learn if they are to be successful in their overseas
developments,” Mark Cutifani, a former chief operating officer
of Vale Inco and now CEO of AngloGold Ashanti Ltd. (ANG), wrote in e-
mailed comments to Bloomberg News. “He’s a gentleman and
probably learnt a lot from his experience with Inco.”

About six months after Ferreira left the company,
approximately 3,000 employees represented by the steelworkers at
Vale’s nickel operations in Sudbury and Port Colborne in Canada
went on strike to protest pay and conditions. The industrial
dispute lasted more than a year before ending in July 2010.

Production of the metal used to prevent corrosion in
stainless steel fell to zero in the first quarter of 2010 from
22,400 metric tons a year earlier at Sudbury because of the
strike, according to Vale production reports.

“There was a complete cultural shift when Murilo’s
successor appeared and it became very authoritarian,” union
leader Gerard said. “When our folks met Mr Ferreira they were
impressed with him as someone who was honorable, had an open
mind and interested in discussing how we can work together.”

Ferreira returns to the company he started with as an
analyst in 1977. Until February, he worked at Studio
Investimentos, an investment fund set up with partners including
former Vale Chief Financial Officer Gabriel Stoliar in a French-
style house in Rio’s beachside neighborhood of Leblon. Its
Studio Master FIA (STUMAST) fund returned about 33 percent during 2010 and
is down 0.2 percent this year, according to Bloomberg data.

Vale Holdings

Even after leaving in 2008, Ferreira continued to watch the
company closely: the fund’s main holding as of Jan. 31 was Vale.
It also held shares of Petroleo Brasileiro SA and Santos Brasil
Participacoes SA (STBP11), Brazil’s biggest port by value shipped.

“Murilo will carry on with Vale’s internationalization and
diversification processes, enlarging the company’s presence in
non-iron ore markets such as coal, copper, zinc and
fertilizers,” says Jorio Dauster, who headed Vale between 1999
and 2001. “He impressed me by his easy way with colleagues and
workers, as well as his preference for team work,” he said.

Ferreira was born in the town of Uberaba, 475 kilometers
(295 miles) west of Belo Horizonte, capital of the southeastern
state of Minas Gerais, which is also the birthplace of President
Rousseff. He earned two graduate and post-graduate degrees in
business administration from the Getulio Vargas Foundation in
Sao Paulo and in Rio de Janeiro.

Head of Inco

Prior to becoming the head of Inco and the company’s
executive director of nickel and base metals sales, he was
director of the company’s aluminum business.

“I leave in peace with a sense of mission accomplished,”
Agnelli told reporters May 20. “Murilo was among my right-hand
men at Vale. He did brilliant work in the aluminum area, a
fantastic job,” he said in Rio de Janeiro.

A fan of Fluminense, Brazil’s current soccer champions,
Ferreira lives in Leblon with his wife and a teenager daughter.
As a practicing catholic, he goes to Church regularly.

“He is a very serious guy,” said Diego Hernandez, Chief
Executive Officer of Codelco, the world’s largest copper
producer, who was an executive director for Vale’s non-ferrous
division between 2001 and 2004. “He as a Brazilian went to
Canada Inco. That was a tough challenge.”

Pension Funds

Brazil pension funds Funcef, Previ, Petros and Funcesp, all
linked to state-run institutions, hold 49 percent of Valepar SA,
the company that controls Vale with about 53.5 percent of its
ordinary shares. BNDESPAR, a subsidiary of the Brazilian state-
owned development bank, holds 11.5 percent of the controller and
also has a 6.7 percent direct stake in Vale’s common shares.

“The shareholders decided to make changes in the direction
of the company and I wanted to go along with them. Now it’s
business as usual. I don’t see any anomaly,” Brazil’s Finance
Minister Guido Mantega said May 3 in a Senate hearing, adding
that Agnelli ignored the government’s criticism over job cuts
and requests to invest more in steel to boost exports.

Ferreira was one of six candidates that CTPartners’
Vasconcellos drew up after a request from Vale Chairman Ricardo Flores on March 31, he said in a telephone interview from Sao
Paulo. Contenders would have to be present or former executive
directors of the company, according to a requirement set by
Vale’s controlling shareholder Valepar, reducing the number of
candidates and speeding up the process, he said.

“They were looking for a substitute of Roger that would
give continuity,” said Vasconcellos, a former executive at
Alcoa Inc. (AA) and steelmaker Cia. Siderurgica Nacional SA.

“Murilo is a business thinker, a very good strategist, a
tireless negotiator,” Vasconcellos said. “He seems quiet but
he is always advancing in the negotiations,” he said.